Treasury Lifts Tornado Cash Sanctions After Court Ruling

The US Treasury Department has made a significant move by lifting economic sanctions against Tornado Cash, a cryptocurrency mixing service that had been under scrutiny for allegedly facilitating illicit financial activities, including money laundering for North Korean hackers. This decision comes after a legal challenge from cryptocurrency advocates and a court ruling that found the sanctions exceeded the Treasury’s authority.

Tornado Cash, which allows users to obscure the origins and destinations of digital transactions, was blacklisted by the Treasury’s Office of Foreign Assets Control (OFAC) in 2022. Regulators had claimed that the platform was used to launder over $7 billion in illicit funds, including $455 million stolen by the North Korean state-backed hacking group Lazarus. Despite reversing the sanctions, the Treasury maintained that North Korea’s cybercrime operations remained a serious threat. Officials stated that the administration would continue to explore other measures to combat the misuse of digital assets for criminal purposes.

Secretary of the Treasury Scott Bessent emphasized the importance of securing the digital asset industry from abuse by illicit actors, stating that digital assets present enormous opportunities for innovation and value creation for the American people. He noted that securing the digital asset industry from abuse by North Korea and other illicit actors is essential to establishing US leadership and ensuring that the American people can benefit from financial innovation and inclusion.

The decision to lift the sanctions follows a lengthy court battle initiated by six Tornado Cash users, who were financially backed by a cryptocurrency exchange. The plaintiffs argued that sanctioning open-source software amounted to an infringement on free speech and hindered technological development. A federal appeals court ruled in their favor in November 2024, finding that the Treasury had overstepped its authority. The court determined that Tornado Cash’s immutable smart contracts did not meet the legal definition of “property” under US sanctions laws, making OFAC’s designation invalid under the International Emergency Economic Powers Act.

Judge Don Willett, writing for the court, acknowledged that while the technology could be used for illicit purposes, the responsibility for regulating such tools lay with Congress rather than the judiciary. The ruling raised broader concerns about how US agencies apply financial sanctions in the rapidly evolving world of decentralized finance.

The Biden administration’s stance on cryptocurrency regulation has come under scrutiny, particularly as Donald Trump has positioned himself as a pro-crypto candidate. Earlier this month, Trump signed an executive order establishing a strategic cryptocurrency reserve and hosted a White House summit with industry leaders to discuss regulatory changes.

Legal scrutiny of Tornado Cash is not over. Co-founder Roman Storm is awaiting trial in the US on charges of facilitating over $1 billion in illicit transactions. Another developer, Alexey Pertsev, was sentenced last year in the Netherlands to more than five years in prison for money laundering. The lifting of sanctions on Tornado Cash highlights the ongoing tension between regulators and the cryptocurrency industry, as governments worldwide struggle to balance financial innovation with the need for oversight and security.